Whenever a case is brought before the Dutch courts in breach of a foreign-seated arbitration agreement, Dutch arbitration law provides that the claim should be referred to arbitration where both:

(Article 1074 of the Dutch Code of Civil Procedure.)

In 2008, a Dutch subsidiary within the Subway group of companies entered into a franchise agreement with a natural person residing in the Netherlands in respect of a Subway sandwich shop in the Netherlands. The general terms and conditions of the franchise agreement contained a choice of Liechtenstein governing law and an arbitration agreement requiring disputes to be submitted to an administered English-language UNCITRAL arbitration with its seat in New York.

A dispute arose and the franchisee commenced court proceedings against Subway in the Netherlands, in breach of the dispute resolution provisions in the franchise agreement. Subway raised a jurisdictional objection, in response to which the franchisee argued that the arbitration agreement was invalid.

At first instance, the Amsterdam district court held that it had no jurisdiction to hear and decide the case brought by the franchisee. Its decision rested largely on the fact that a legal opinion of a Liechtenstein lawyer engaged by Subway, asserting that the arbitration agreement was valid according to Liechtenstein law, remained essentially uncontested by the franchisee.

The franchisee appealed the district court's judgment, arguing, among other things, that:

In an interim judgment, the Amsterdam Court of Appeal held that, according to Dutch arbitration law, it would have to decline jurisdiction unless the invoked arbitration agreement would be invalid under the applicable law. Although there was no express choice of law governing the arbitration agreement, the Court of Appeal accepted the applicability of Liechtenstein law to the arbitration agreement and provided the parties the opportunity to submit statements on the validity of the arbitration agreement according to Liechtenstein law.

Following receipt of the parties' submissions on this point, the Court of Appeal issued a further judgment. It held that applicable rules of Liechtenstein law provide that an (arbitration) agreement be considered null and void where a provision contained within general terms and conditions contains a disproportionate disadvantage for one of the parties.

In its assessment as to whether such a disproportionate disadvantage existed here, the Court of Appeal considered, among other factors, that:

The Court of Appeal held that, taken together, all of these circumstances rendered the arbitration agreement null and void due to the disproportionate disadvantage that resulted for the franchisee.

The judgments of the Court of Appeal are surprising for several reasons.

First, it is debatable whether Liechtenstein law was the correct law to apply to the arbitration agreement. The franchise agreement's general terms and conditions contained a choice of Liechtenstein law. However, under the doctrine of separability, this choice of law need not automatically have extended to the arbitration agreement. Since both the franchisee and the franchisor resided in the Netherlands, the Court of Appeal could in this case also have determined that Dutch law should apply to the arbitration agreement.

Second, the judgments favoured the franchisee by concluding that (cost) efficient access to a dispute resolution process for the weaker party had to be ensured (according to Liechtenstein law). However, the declaration of an arbitration agreement as unenforceable should not solely be based on the argument that an arbitration might be too costly in both time and money. Additional circumstances should be present to justify the unenforceability of an arbitration agreement. This is especially true since the all relevant jurisdictions in this case (namely the Netherlands, the US and Liechtenstein) have adopted the New York Convention that requires the recognition of (foreign) arbitration agreements by domestic courts.

Third, several aspects of the Court of Appeal's deliberations were questionable. For example, the fact that the tribunal might be seated in New York did not mean that hearings necessarily had to be conducted there. The court's assumption that hearings would be in the US may therefore have been unjustified. Furthermore, the Court of Appeal's determination that arbitrating in English (as opposed to the franchisee's mother tongue, Dutch) posed a disadvantage to the franchisee is similarly problematic. Indeed, were such an approach widely adopted, there would hardly be a basis to continue with international arbitration.